Investment Focus 23

Investment Focus 23

INVESTMENT FOCUS | 3

Foreword From the Editor

Welcome to the Autumn edition of Investment Focus. Infrastructure investment has gained in popularity over recent decades as more investors have sought diversification, stable long- term income streams and an element of inflation protection. Michael Howard, Head of Alternative Investments at Prudential discusses the opportunities presented by investments in infrastructure. Tenet’s Technical Services and Research department have looked at some inheritance tax planning opportunities to help clients make the best use of the Residence Nil Rate Band. Also in this issue: 10 years on…and still not out of the woods. Ewan Millar, Senior Investment Manager at Cornelian Asset Managers, warns on complacency when entering unknown territory. We also take a look into an innovative passive approach to IHT mitigation, detailing TIME’s ‘smart passive’ AIM IHT service, the first service of its kind. The service is designed to offer investors IHT relief in just two years while also aiming to provide lower volatility returns than the AIM market. Claudia Quiroz, Lead Fund Manager within the Quilter Cheviot’s Climate Assets team, explores a key sustainable investment theme for the year ahead and explains how pursuing sustainable investment opportunities can help to strengthen client portfolios.

The market environment has certainly been challenging for active managers in recent years. However, as Matt Beesley, Head of Equities at GAM, explains, now is the time for active management to return to the fore with truly active managers ready to exploit the valuation anomalies created by the indiscriminate buying and selling of the capitalisation-weighted market. I hope you find this edition informative and supportive and enjoy reading the excellent and varied selection of articles.

Kind regards Cristina Provider Marketing Consultant

EDITOR Cristina Giovanelli

Tenet Group Limited, 5 Lister Hill, Horsforth, Leeds, LS18 5AZ Tel 0113 239 0011 Fax 0113 258 6959

This publication is for internal purposes only and is not intended as an advertisement. As a result this should not be issued in any form to clients. Not all the products in this feature are the responsibility of the Tenet Group Limited. Terms and Conditions. Although every effort has been made to ensure the accuracy of the information contained in this publication, The Tenet Group cannot accept responsibility for any errors it may contain. The Tenet Group cannot be held responsible for the loss or damage of any material, solicited or unsolicited. No reproduction of any part of this publication, in any form or by any means, without prior written consent from The Tenet Group. The views ex- pressed in this publication do not necessarily reflect those of the advertisers or the publishers.

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TECHNICAL SERVICES AND RESEARCH Making the Most of the Residence Nil Rate Band

Michael Walker Technical Services and Research Consultant

David Lloyd Technical Services and Research Consultant

Tapering of the RNRB The maximum available RNRB is reduced by £1 for every £2 that the deceased’s net estate exceeds £2 million. This means that for a death in the 2017/18 tax year (when the maximum available RNRB will be £100,000) there will be no RNRB available where the net estate is worth over £2.2 million. The taper can also affect the value of any transferable RNRB which is available following the death of a spouse or civil partner. Let’s look at the effect of the taper using an example. Your clients have a total estate worth £2.3 million including a main residence of £400,000 being left directly to the children on second death. In the event of second death in 2017/18, the estate will have access to the deceased partner’s unused NRB and RNRB. As the total estate is over £2.0 million the RNRB is tapered: • £2,300,000 – £2,000,000 = £300,000 • £300,000 / 2 = £150,000 reduction to RNRB The available RNRB is calculated as follows: • (£100,000 x 2) – £150,000 = £50,000 remaining The IHT payable would therefore be:

The Residence Nil Rate Band (RNRB) has been with us now for a few months and Tenet are starting to see cases where it is having a material impact on the overall holistic IHT advice. In particular the potential gains which could be made by considering lifetime and first death IHT planning. This article will look at some of the IHT planning opportunities which are available. First let’s have a quick reminder what the RNRB is. RNRB – The Basics The RNRB is available to estates where the individual died on or after 6 April 2017 and where the main residence is passed down to direct descendants (eg. children or grandchildren). The introduction of this allowance is due to be phased in over 4 years from £100,000 (2017/18) to £175,000 (2020/21) and then increasing in line with CPI. This means that during 2017/18, each eligible individual has a nil rate band (NRB) of £325,000 plus a potential RNRB of £100,000, totalling up to £425,000 each. The value of the RNRB available is limited to the lower of the value of the home that is being inherited and the maximum RNRB available at the time of death. Any unused RNRB can be transferred between spouses, even if one of the couple died before 6 April 2017. This could therefore result in a potential total value of £1 million being exempt from IHT in 2020/21.

Estate

£2,300,000

Less RNRB

£50,000 £650,000

Less NRB (£325,000 x 2)

Remaining Estate

£1,600,000 £640,000

IHT @ 40%

The size of the estate on second death results in additional IHT of £60,000 being paid.

It is here that opportunities exist to manage the estate to maximise the value of the RNRB available on second death.

INVESTMENT FOCUS | 5

IHT Efficient Investments There are numerous methods available that can be used to reduce a client’s liability to IHT. One of these is to use an investment which attracts Business Relief (BR). BR investments move out of the client’s estate in 2 years. Prior to the introduction of the RNRB it was not unusual for the BR assets to remain in the estate on second death. However, there is a sting in the tail when it comes to IHT efficient investments that attract reliefs and their interaction with the RNRB. Crucially, the value of these investments remain within the client’s estate for the purposes of calculating any taper to the RNRB, even if they qualify for IHT relief. Let’s apply this to the case study below: The clients had invested £500,000 in a BR scheme two years ago which now qualifys for BR. On second death the estate for IHT purposes is now £1.8 million. However, the net estate for the purposes of the RNRB taper remains £2.3 million. The IHT payable would therefore be:

First Death Planning If circumstances allow, it may be beneficial to consider using the NRB and RNRB on the death of the first partner in order to reduce the value of the surviving partner’s net estate. Let’s look at the couple again, this time they do not hold qualifying BR assets. Instead they decide to pass on £300,000 of assets to their children on first death and the remainder of the estate, including the main residence, to the surviving spouse. There would be no IHT to pay on first death but £300,000 of the deceased’s NRB would be used. On second death the estate value is £2.0 million. As a result there is no reduction to the RNRB. However there is only £25,000 of the deceased partners NRB available so the IHT calculation would now be:

Estate

£2,000,000

Less RNRB

£200,000 £350,000

Less NRB (£325,000 + £25,000)

Remaining Estate

£1,450,000 £580,000

Estate

£1,800,000

IHT @ 40%

Less RNRB

£50,000 £650,000

Less NRB (£325,000 x 2)

The IHT bill without this planning would be £640,000 so this approach also saves £60,000 .

Remaining Estate

£1,100,000 £440,000

IHT @ 40%

The BPR has reduced the IHT bill but the clients are still paying an additional £60,000 due to the lost RNRB.

When conducting this planning prior to 2020/21, this will need to be balanced with the proposed increases to the RNRB as any unused RNRB from a deceased spouse will be applied as a proportion of the rate applicable on the date of the second death. For example, the first client dies in 2017/18 when the RNRB is £100,000. However, this goes unused and is passed to the surviving spouse, who subsequently dies in the 2019/20 tax year. As such, the available RNRB at that date will be £300,000 (£150,000 x 2). Opportunities The RNRB may be a difficult concept for clients to fully understand but it is important that advisers are aware of the issues and are comfortable in assessing the client’s potential liability. By understanding the intricacies of the RNRB and the methods that can be used to ensure that it is fully utilised, it is possible to add real value to recommendations and potentially create large IHT savings for clients.

Inheritance Tax Planning The manner in which the taper is applied may be a nasty surprise for some clients. However, through an effective use of gifting, the RNRB can be saved providing real benefits to the client and their beneficiaries. A gift out of the estate, even immediately prior to death, would not be included in the value of the estate when performing the calculation for the taper of the RNRB. The gift would still be classed as a Potentially Exempt Transfer (PET) and would be included in the estate for IHT purposes should the donor fail to live for seven years from the date of the gift. Let’s look at the potential benefit of gifting the BR assets: Continuing the previous example, let’s assume that the couple gifts the £500,000 BR qualifying assets to the couple’s children. Whilst the value of the estate when calculating the IHT liability would still be £1.8 million, the value of the BR investment would not be included for the purpose of the RNRB taper. This means that the full RNRB allowance (plus the deceased spouses’ unused RNRB) would now be available. The IHT payable would therefore be:

Technical Services & Research are at hand to answer any questions in this area. Advisers can contact the team on 0113 239 5317 or [email protected] Tenet’s Paraplanning department are also available and have already dealt with a number of cases in this specific area. If you would like to speak to one of the team to see how they can help, please call 0113 239 5326 or email [email protected].

Estate

£1,800,000 £200,000 £650,000 £950,000 £380,000

Less RNRB Less NRB

Remaining Estate

IHT @ 40%

The estate has ended up in the hands of exactly the same beneficiaries. The only change has been the timing of when the funds have been transferred, enabling the RNRB to be fully utilised saving the £60,000 .

6 | INVESTMENT FOCUS

TENET EVENTS 2017 SUPPORTING YOUR DEVELOPMENT…

CYCLE 3 PROFESSIONAL DEVELOPMENT MEETINGS All PDMs are accredited for structured CPD.

Our final round of PDMs for 2017 will provide an insightful day, with content from a wide range of programme partners. The agenda will start with a look at the effectiveness of a decumulation investment strategy and managing market volatility during retirement. We will then examine the importance of protection planning as part of a holistic advice approach, managing risk and clients’ perceptions of risk in the market and the evolution of investment solutions. We will then look at a review of income protection, state benefits and the duty of care to your clients in this market. We continue with a look at equity release (ER), including a market update and the exciting prospects for ER in the future. The closing sessions begin with a look at the opportunities available through employee benefits and conclude with a session about advising on pension changes - with consideration to the regulator’s current thinking on transferring safeguarded benefits and ensuring suitable client outcomes.

Date

Location Sheffield

Venue

26/09/17 28/09/17 03/10/17 04/10/17 05/10/17 10/10/17 11/10/17

Tankersley Manor Stormont Hotel

Belfast

Manchester Gloucester Southampton Cumbernauld

Haydock Park

Stonehouse Court

Hilton at the Ageas Bowl The Westerwood Hotel

Durham

Lumley Castle

12/10/17 Leeds

Oulton Hall

17/10/17

Maidstone

Hilton Maidstone

18/10/17 London Central

DeVere Holborn Bars

19/10/17 Bishops Stortford Down Hall 31/10/17 Exeter Sandy Park

Conference Centre

01/11/17 Glamorgan The Vale 02/11/17 Birmingham Village Solihull 07/11/17 Reading Hilton Reading 08/11/17 London Wembley Holiday Inn Wembley 09/11/17 Nottingham Nottingham Belfry

Presenting at these events are the following:

To book your place on a Professional Development Meeting Three visit: https://events.tenetgroup.co.uk/ cyclethreepdms2017

THE TENET EVENTS APP Events are delighted to announce the introduction of a new interactive app which will give the delegates attending Tenet events throughout the year an enhanced experience. Delegates can access details about the event including the agenda, session details, speaker names and their contact details. The interactive features include answering live questions, responding to feedback questions and sharing contact information or messaging other attendees.

INVESTMENT FOCUS | 7

On the morning of the last Friday of every month, Tenet is hosting a live webinar with a single Provider, Fund Manager, Lender or Tenet department which you can view from the comfort of your home or office. You will have the opportunity to view the webinar and interact with the speakers, asking any questions you may have. These webinar events now offer CPD for 30 minutes. WEBINARS CPD Webinars, new to this year’s events programme!

THE WEBINARS ARE A GREAT OPPORTUNITY TO TOP-UP ON YOUR CPD. Don’t just take our word for it... “Webinars are an excellent method of learning about products and/or services - and so convenient. From the comfort of your own home or office you can log in to the lecture/discussion/ seminar of your choice and using the interactive facility, you can participate in the presentation. Absolutely brilliant method of learning!” Stephen Colman, Independent Financial Solutions. “Apart from helping me to utilise my time more efficiently by not having to travel, I can still fully participate in the session by asking questions if required. One of the best things about this initiative is that I can catch up with the webinar in my own time and still have the catch-up session recorded as part of my CPD. Also, of course, being able to access the library of the webinars means they also provide a source of information for the future when I have identified a specific client need and I want to be reminded of the solutions discussed.” Sally Moloney, Chartwell Independent,

Upcoming Webinar... Aviva Investors - Outsourcing To Multi-Asset Solutions - Standing The Test of Time Friday 29 th September, 9.30am

Register now for the Aviva Investors webinar: http://webinars.tenetgroup.co.uk/webinar-10/register And, if you miss the event you can still download the webinar to view at your convenience. Previous Webinars available to view again...

‘The real benefits of working with a DFM’ Presented by Jason Williams, Business Development Manager http://webinars.tenetgroup.co.uk/ webinar-9/register ‘Pensions and Divorce’ Presented by David Clapham, Adviser Training Officer, Tenet http://webinars.tenetgroup.co.uk/ webinar-7/register ‘Making It Personal’ Presented by Malcolm Tyrrell, Business Development Manager http://webinars.tenetgroup.co.uk/ webinar-5/register ‘No Income means there will be an Outcome’ Presented by Steve Fallon, Market Development Manager http://webinars.tenetgroup.co.uk/ webinar-4/register ‘Bond markets are at a turning point’ Presented by Laura Frost, Investment Director, Retail Fixed Interest Team http://webinars.tenetgroup.co.uk/ webinar-2/register ‘If 2016 brought surprises, what does 2017 have in store?’ Presented by Mark Rimmer,Product Director, Multi Asset Funds http://webinars.tenetgroup.co.uk/tenet- webinar-1/register

Tenet webinars in partnership with

To watch or for more information, visit: https://events.tenetgroup.co.uk/ tenetcpdwebinars2017

INVESTMENT FOCUS | 9

UK inflation fails to rise and market forecasts are likely to be cut

Azad Zangana Senior European Economist and Strategist

Impact of weaker sterling is waning Separately, the Office for National Statistics also published the latest producer prices index (PPI), showing both input and output inflation was lower than expected. This is an important report at the moment as it is helping economists track the impact of the depreciation in sterling on companies, which eventually impacts the consumer. The latest figures show both input and output PPI inflation slowing – suggesting that we could be past the peak of the impact from the currency devaluation. Taken together with the latest CPI >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32

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